The Treasury has successfully auctioned $32 billion 7-year notes. This was the third consecutive time the 7 year note offering has been at a record $32 billion size.  

The high yield was 3.127%, which was 0.5 basis points lower than the 1pm "When Issued" yield, which is better than average.

The bid to cover ratio, a measure of auction demand, was 2.85 bids submitted for every one accepted by the Treasury. The 7 year note has seen an average bid to cover of 2.571 since the issue was reopened in February 2009, so auction demand was strong!

Dealers took 37.1% of the auction. This is below recent auction averages.

Direct Bidders took 11.8% of the issuance. This is well above recent auction averages.

Indirect Bidders were awarded 51.0% of the auction. Below recent 7 year note auction averages, but better than the most recent 7yr note auction turnout where indirects took 44.7% of the total.

Overall...a great auction.

Here are the results:

    High           3.127 pct
    Median      3.090 pct
    Low            2.970 pct 

    Price                                               99.987385
    Accepted at high                          36.66 pct
    Bid-to-cover ratio                          2.85    

    Total accepted                                 32,000,023,900
    Total public bids tendered            91,340,051,900
    Competitive bids accepted           31,976,347,000
    Noncompetitive bids accepted    23,676,900
    Fed add-ons                                    521,441,800
    Primary Dealer Tendered            61,448,000,000
    Primary Dealer Accepted             11,874,660,000
    Primary Dealer Hit Rate               19.3% of what they bid on
    Primary Dealer Total Award         37.1 % of total auction
    Direct Bidder Tendered               8,400,300,000
    Direct Bidder Accepted                3,775,300,000 
    Direct Bidder Hit Rate                  44.9% of what they bid on
    Direct Bidder Total Award           11.8% of total auction   

    Indirect Bidder Tendered            21,468,075,000
    Indirect Bidder Accepted             16,326,387,000
    Indirect Bidder Hit Rate               76.0% of what they bid on
    Indirect Bidder Total Award        51.0% of total auction
    Issued date    Feb. 01, 2010
    Maturity date  Jan. 31, 2017
    CUSIP number   912828MK3

Dutch auctions are also called uniform-price auctions. Successful bidders pay only the price of the lowest accepted bid, rather than the actual price they bid as in a multiple-price auction.

Besides an initial move higher in prices, the rates market hasn't really reacted yet. 10s are currently -0-06 at 97-18 yielding 3.673%

The FN 4.0 is -0-05 at 97-16 yielding 4.238% and the FN 4.5 is -0-04 at 100-19 yielding 4.445%. The secondary market current coupon is 4.414%.


The failure of rates to improve after strong auction results would imply my pre-auction theory regarding the unwinding of post-FOMC yield curve flattener positions (PLAIN AND SIMPLE) and the re-emergence of steepener positions is the trade of choice in the rates market at the moment. Its a traders world and we're still living in it.

The yield curve is even steeper after the auction!

 There is another obvious factor prohibiting positive progress, stocks have rebounded and are now testing the all important 1087 pivot point.

I am looking for some "bargain buying" support from TSY futures traders to at least help us maintain stability and avoid a reprice for the worse. Unfortunately, if stocks do pick up momentum and break 1087, that support will be muted and we could see lenders get defensive with their rate sheets.